BankUnited, Inc. Reports Second Quarter 2023 Results

BankUnited, Inc. (the “Company”) (NYSE: BKU) today announced financial results for the quarter ended June 30, 2023.

"As volatility in the capital markets recedes and the economy remains resilient, we have returned our focus to executing on our long term strategy of building a relationship oriented bank," said Rajinder Singh, Chairman, President and Chief Executive Officer.

For the quarter ended June 30, 2023, the Company reported net income of $58.0 million, or $0.78 per diluted share, compared to $52.9 million, or $0.70 per diluted share for the immediately preceding quarter ended March 31, 2023 and $65.8 million, or $0.82 per diluted share, for the quarter ended June 30, 2022. For the six months ended June 30, 2023, the Company reported net income of $110.9 million or $1.48 per diluted share compared to $132.9 million or $1.60 per diluted share for the six months ended June 30, 2022.

Quarterly Highlights

• Total deposits grew by $116 million during the quarter ended June 30, 2023. Non-interest bearing deposits remained largely consistent as a percentage of deposits, representing 28.3% of total deposits at June 30, 2023 compared to 28.6% at March 31, 2023, declining by $62 million for the quarter.

• Our liquidity position remains strong, and improved over the course of the second quarter. At June 30, 2023, total same day available liquidity had increased to $14.7 billion from $9.4 billion at March 31, 2023. The available liquidity to uninsured, uncollateralized deposits ratio improved to 167% at June 30, 2023 from 95% at March 31, 2023 while the portion of our deposits that were insured or collateralized grew to 66% at June 30, 2023 from 62% at March 31, 2023.

• We made progress in reducing wholesale funding as outstanding FHLB advances were down $1.6 billion quarter-over-quarter.

• Net interest income and the net interest margin for the quarter ended June 30, 2023 were impacted by an increase in the cost of funds which more than offset the increased yield on interest-earning assets. A challenging deposit growth environment and a higher level of on-balance sheet liquidity for much of the quarter led to increased reliance on higher cost deposits and wholesale funding. The net interest margin, calculated on a tax-equivalent basis, was 2.47% for the quarter ended June 30, 2023, compared to 2.62% for the immediately preceding quarter ended March 31, 2023 and 2.63% for the quarter ended June 30, 2022. Net interest income decreased by $14.0 million, compared to the immediately preceding quarter ended March 31, 2023 and by $11.5 million compared to the quarter ended June 30, 2022.

• Consistent with industry trends, rising interest rates and tighter liquidity conditions contributed to an increase in the average cost of total deposits to 2.46% for the quarter ended June 30, 2023 from 2.05% for the immediately preceding quarter. This increase of 0.41% was smaller than the 0.63% increase in the cost of deposits for the quarter ended March 31, 2023. The yield on average interest earning assets increased to 5.30% for the quarter ended June 30, 2023 from 5.05% for the immediately preceding quarter.

• Total loans declined by $263 million quarter-over-quarter. Most of the decline was attributable to residential which was down by $184 million. Consistent with our strategy to re-position the composition of the balance sheet, cash flows from the residential portfolio were used to pay down wholesale funding.

• Credit remains favorable. The NPA ratio at June 30, 2023 was 0.34%, including 0.10% related to the guaranteed portion of non-performing SBA loans compared to 0.32%, including 0.10% related to the guaranteed portion of non-performing SBA loans at March 31, 2023. The annualized net charge-off ratio for the six months ended June 30, 2023 was 0.09%.

• Reflecting management's concentration risk management strategy, commercial real estate exposure is modest. Commercial real estate loans totaled 23% of loans at June 30, 2023, representing 169% of the Bank's total risk based capital. At June 30, 2023, the weighted average LTV of the CRE portfolio was 57.1% and the weighted average DSCR was 1.88. 60% of the portfolio was secured by collateral properties located in Florida and 25% was secured by properties in the New York tri-state area.

• For the quarter ended June 30, 2023, the provision for credit losses was $15.5 million compared to provisions of $19.8 million and $24.0 million for the quarters ended March 31, 2023 and June 30, 2022, respectively. The ratio of the ACL to total loans increased to 0.68%, at June 30, 2023 from 0.64% at March 31, 2023, reflecting the impact on modeling expected credit losses of a less favorable Moody's baseline economic forecast and heavier weighting of a downside scenario in calculating the ACL.

• We remain committed to keeping the duration of our securities portfolio short; the duration of the available for sale securities portfolio was 1.94 at June 30, 2023. Held to maturity securities were not significant.

• Our capital position is robust. CET1 was 11.2% at the holding company and 13.0% at the Bank at June 30, 2023. Pro-forma CET1 at the holding company and the Bank, including accumulated other comprehensive income, were 9.7% and 11.5%, respectively.

• Book value and tangible book value per common share improved to $33.94 and $32.90, respectively, at June 30, 2023, from $33.34 and $32.30, respectively at March 31, 2023.

Deposits and Funding

Total deposits grew by $116 million during the quarter ended June 30, 2023. Non-interest bearing demand deposits declined by $62 million, interest-bearing non-maturity deposits declined by $92 million and time deposits grew by $270 million. Account level deposit flows throughout the quarter generally appeared to be within the range of what we consider normal operating activity.

Consistent with the current interest rate environment and monetary policy stance, the cost of total deposits increased to 2.46% from 2.05% for the immediately preceding quarter, while the cost of interest bearing deposits increased to 3.39% for the quarter ended June 30, 2023 from 2.86% for the preceding quarter.

FHLB advances declined by $1.6 billion for the quarter, as we used cash flows generated by the residential and securities portfolios to reduce wholesale funding levels and allow for future re-deployment of capital into higher yielding assets.

Loans

A comparison of loan portfolio composition at the dates indicated follows (dollars in thousands):

For the quarter ended June 30, 2023, residential declined by $184 million, C&I and CRE declined by $49 million in total, franchise and equipment finance declined by $60 million in aggregate and municipal finance grew by $32 million.

Asset Quality and the Allowance for Credit Losses ("ACL")

Non-performing loans totaled $118.7 million or 0.48% of total loans at June 30, 2023, compared to $114.2 million or 0.46% of total loans at March 31, 2023. Non-performing loans included $35.9 million and $36.9 million of the guaranteed portion of SBA loans on non-accrual status, representing 0.15% of total loans at both June 30, 2023 and March 31, 2023.

The following table presents criticized and classified commercial loans at the dates indicated (in thousands):

One $22 million loan that was moved to special mention during the quarter paid off shortly after quarter-end.

The following table presents the ACL and related ACL coverage ratios at the dates indicated and net charge-off rates for the periods ended June 30, 2023, March 31, 2023 and December 31, 2022 (dollars in thousands):

The ACL at June 30, 2023 represents management's estimate of lifetime expected credit losses given an assessment of historical data, current conditions, and a reasonable and supportable economic forecast as of the balance sheet date. For the quarter ended June 30, 2023, the provision for credit losses was $15.5 million, including $14.2 million related to funded loans. The more significant factors impacting the provision for credit losses and increase in the ACL for the quarter ended June 30, 2023 were a less favorable Moody's baseline economic forecast and heavier weighting of a downside scenario.

The following table summarizes the activity in the ACL for the periods indicated (in thousands):

Net Interest Income

Net interest income for the quarter ended June 30, 2023 was $213.9 million, compared to $227.9 million for the immediately preceding quarter ended March 31, 2023 and $225.4 million for the quarter ended June 30, 2022. Interest income increased by $23.0 million for the quarter ended June 30, 2023 compared to the immediately preceding quarter while interest expense increased by $37.0 million.

The Company’s net interest margin, calculated on a tax-equivalent basis, decreased by 0.15% to 2.47% for the quarter ended June 30, 2023, from 2.62% for the immediately preceding quarter ended March 31, 2023. Overall, the net interest margin was negatively impacted by an increase in the cost of interest-bearing deposits and FHLB advances, more than offsetting the increased yield on interest earning assets. A decline in average non-interest bearing deposits and an increase in on-balance sheet liquidity contributed to an increase in higher-cost funding.

More detail about certain factors impacting the net interest margin for the quarter ended June 30, 2023 follows:

• The tax-equivalent yield on investment securities increased to 5.19% for the quarter ended June 30, 2023, from 4.95% for the quarter ended March 31, 2023. This increase resulted primarily from the reset of coupon rates on variable rate securities.

• The tax-equivalent yield on loans increased to 5.35% for the quarter ended June 30, 2023, from 5.10% for the quarter ended March 31, 2023. The resetting of variable rate loans to higher coupon rates and origination of new loans at higher rates contributed to the increase.

• The average cost on interest bearing deposits increased to 3.39% for the quarter ended June 30, 2023 from 2.86% for the quarter ended March 31, 2023, as a result of the rising interest rate environment, tightening liquidity conditions and the shift from non-interest bearing deposits to deposits priced at current, higher market rates.

• The average rate paid on FHLB advances increased to 4.59% for the quarter ended June 30, 2023, from 4.27% for the quarter ended March 31, 2023, primarily due to higher prevailing rates, partially offset by the impact of cash flow hedges.

Non-interest income and Non-interest expense

Non-interest income totaled $25.5 million for the quarter ended June 30, 2023, compared to $16.5 million for the quarter ended March 31, 2023 and $13.5 million for the quarter ended June 30, 2022. This increase over the comparable quarters was primarily attributable to losses on certain preferred equity investments of $13.3 million and $9.3 million during the quarters ended March 31, 2023 and June 30, 2022, respectively.

Non-interest expense totaled $145.2 million for the quarter ended June 30, 2023, compared to $152.8 million for the immediately preceding quarter ended March 31, 2023 and $127.4 million for the quarter ended June 30, 2022. The quarter over quarter decline in compensation and benefits reflected expected seasonal fluctuations in payroll taxes and benefits. The quarter over quarter decline in other non-interest expense was impacted by $4.4 million in certain operational losses recognized during the quarter ended March 31, 2023. Costs related to deposit rebate and commission programs increased by $7.2 million for the quarter ended June 30, 2023 compared to the second quarter of the prior year.

Earnings Conference Call and Presentation

A conference call to discuss quarterly results will be held at 9:00 a.m. ET on Tuesday, July 25, 2023 with Chairman, President and Chief Executive Officer, Rajinder P. Singh, Chief Financial Officer, Leslie N. Lunak and Chief Operating Officer, Thomas M. Cornish.

The earnings release and slides with supplemental information relating to the release will be available on the Investor Relations page under About Us on www.bankunited.com prior to the call. Due to recent demand for conference call services, participants are encouraged to listen to the call via a live Internet webcast at https://ir.bankunited.com. To participate by telephone, participants will receive dial-in information and a unique PIN number upon completion of registration at https://register.vevent.com/register/BIe6f3323769d343d48b39c8774b18f417. For those unable to join the live event, an archived webcast will be available in the Investor Relations page at https://ir.bankunited.com approximately two hours following the live webcast.

About BankUnited, Inc.

BankUnited, Inc., with total assets of $35.9 billion at June 30, 2023, is the bank holding company of BankUnited, N.A., a national bank headquartered in Miami Lakes, Florida that provides a full range of banking and related services to individual and corporate customers through banking centers located in the state of Florida, New York metropolitan area and Dallas, Texas, and a comprehensive suite of wholesale products to customers through an Atlanta office focused on the Southeast region. BankUnited also offers certain commercial lending and deposit products through national platforms. For additional information, call (877) 779-2265 or visit www.BankUnited.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance.

The Company generally identifies forward-looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” "forecasts" or the negative version of those words or other comparable words. Any forward-looking statements contained in this press release are based on the historical performance of the Company and its subsidiaries or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations contemplated by the Company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including (without limitations) those relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the Company's direct control, such as adverse events impacting the financial services industry. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K, which are available at the SEC’s website (www.sec.gov).